deck_3005000 Flashcards
What does revenue mean? What is the equation for it?
Revenue is the income earned by a business. Revenue = sales x price
How do you calculate profit?
Revenue - costs
What are indirect and direct costs?
Indirect costs- are the general overheads of running the business, e.g. Salaries, telephone bills, rent.Direct costs- are expenses that are from making a particular product, e.g. Costs of factory labour, raw materials and machinery,
What are fixed and variable costs?
Fixed costs- don’t vary. Have to be paid even if the firm produces nothing.Variable costs- mostly direct costs, factory labour, raw materials.
What is average cost and how do you calculate it?
Average cost is how much each product cost to make. Total cost (£30,000 balls) / output (20,000 balls) = £1.50 per ball
What happens if costs are higher than revenue?
The business will make a loss. So the answer would be negative.
What does a cash flow forecast show?
It shows all the money that’s coming into and going out of a business.
What is cash inflow and cash outflow? And what is net cash flow?
Inflow is when a firm sells their product and gets a flow IN of money. Outflow is when they buy materials or pay wages and money flows OUTNet cash flow is the difference between cash inflow and outflow over a period of time. Inflow - outflow
Why is a cash flow forecast useful?
They are a good way of predicting when the business might have a liquidity problem (lack of cash). You can predict when an overdraft or other finance might be needed.
What problems can having a bad cash flow lead to?
If creditors are not paid on time they could take legal action which means the firm could go into receivership.
How can you improve cash flow?
The business could reschedule their receipts of income. This means that they would give their customers less generous credit terms, or insist they pay cash. They could try to reschedule their payments they make to suppliers. By negotiating better credit terms.
